If you find yourself getting lost (or bored) by bond market news, we hear you. No one is born understanding what a yield curve is, and even financial experts sometimes struggle to articulate the goings-on of the cryptic $160 trillion market.
But when this normally sleepy corner of Wall Street starts rumbling, as it has been recently, everyone — even if you’ve never invested a dime — is affected. So here’s a quick primer on government bonds (we’ll save corporate bonds for another day) and what they mean for you.
Governments around the world rely on borrowed money to keep the lights on. Rather than using a credit card or asking the bank for a loan, the US and other nations issue a variety of bonds, which are essentially IOUs. Investors lend the government money for a set period of time, and, in return, the government pays them interest on that loan.
In the US, those bonds are called Treasuries (after the department that issues them) and they make up some $30 trillion of the $160 trillion global bond market. Other major players include the UK, which issues “gilts,” so called because the Bank of England’s 17th-century debt was issued in the form of a gilded-edge paper certificate. Germany has its bunds, France has its OATs (obligations assimilables du Trésor) and Japan’s government bonds are known in English as simply JGBs.
